CBN approves FMDQ’s commercial paper process

The Central Bank of Nigeria has approved FMDQ OTC Plc’s commercial paper quotation process, boosting the company’s drive to revive the country’s commercial papers market.

With the Central Bank’s approval, the Nigerian fixed income market is expected to witness unprecedented transparency and governance.
Commercial papers are unsecured promissory note with a fixed maturity of about nine months, which are issued by companies to obtain funds to meet short-term debt obligations and are backed only by an issuing bank or corporation’s promise to pay the face amount on the maturity date specified on the note.
Over the past four years, Nigeria’s commercial paper market had shrunk drastically in size, following the release of guidelines on the treatment and issuance of CPs by the CBN in November 2009.
However, with its inauguration in November 2013, FMDQ OTC, focused on its goals to ensure market efficiency, governance and liquidity, had said it was keen to address the dearth in the CP market through development initiatives that would provide price/value data and detailed issuers’/issue information to stakeholders – investors, issuers and regulators.
“Consequently, the FMDQ CPQP was developed, with the aim to strengthen the governance of the CP market and position the money market for improved price formation and doubtlessly, the emergence of a transparent corporate interest rate fixing in the Nigerian OTC financial market,” the company said in a statement announcing the CBN’s approval.
CBN’s approval of the commercial paper process is considered a major step towards achieving the goal of reviving the market and answering the call at FMDQ’s inauguration by the then CBN Governor, Mallam Lamido Sanusi, for the revival of the CP market.
Sanusi had said, “The FMDQ should also look at the revival of the commercial paper market and its regulation. With FMDQ, a fixed income securities exchange, the registration process is expected to be established to kick-start this segment of the money market which is useful in promoting the culture of companies in the issuance of instruments and securities.”
According to FMDQ, the reorganisation of the CP market couldn’t have come at a better time as banks, in compliance with Basel 3 capital and liquidity provisions, are beginning to reposition their balance sheets.
“An active and vibrant CP market is also of immense benefit to domestic and offshore investors – fund managers, pension fund administrators, other corporates, etc. seeking investments in alternative asset classes and to corporates desiring more efficient ways to raise funds,” it said.
It added that following the CBN’s conferment of a ‘No-objection’ to the CPQP, it “has released an exposure draft of its CP Quotations Rules, detailing documentation requirements and Issuing, Paying and Collecting Agent responsibilities, for review by the market.”
The Business Development Officer, FMDQ OTC, Tumi Sekoni, said the CP quotations would take off this month as potential CP issuers and IPCAs are already poised for engagement. FMDQ is now set to quote its first CP on its platform.
The debt-focused securities exchange has placed the draft CP Quotation Rules on its website.
The FMDQ OTC, is a Securities and Exchange Commission-licensed OTC market securities exchange and self-regulatory organisation, which is owned by 24 banks, the Central Bank of Nigeria, Financial Markets Dealers Association and the Nigerian Stock Exchange through its wholly owned subsidiary, the NSE Consult Limited.
Its vision is to become the most liquid, efficient, secure and technology-driven OTC platform in Africa by 2018 through its mission of empowering the OTC financial markets to be innovative and credible, in support of the Nigerian economy.
The company’s primary business focus is on the over-the-counter markets: money, repo, foreign exchange, treasury bills, bonds, currencies and derivatives markets.